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Strategic Planning, Budgeting, and Forecasting with SAP

Financial planning is a key activity for organizations of all sizes to accurately manage profitability and establish the company’s direction for the upcoming year and beyond.

A strong business planning process consists of sales and operations planning (S&OP), demand planning, financial planning, budgeting, and forecasting. All three of these planning elements depend on one another to achieve accurate integrated business planning.

Planning, budgeting, and forecasting involves activities at a number of levels, from high-level summarized strategic plans to detailed financial budgets and forecasts. Let’s take a look at each and what they mean for a company.

Strategic Planning

Strategic planning focuses on realizing a 3-5 year vision that addresses most critical market and organizational challenges.

An effective strategic plan translates your business strategy into a simple story about your organization’s future (see figure below). You know that story is clear when people around you understand what leadership has chosen to do—and not do.

Some key questions to ask during the strategic planning process include:

• What business are we in and how do we continue to compete?
• Which choices will make us more money?
• How will we align resources with our strategy?
• How will we measure our progress?

Budgeting is the annual operating plan that occurs once during the year and is not revised. A budget is completed for all quarters of the upcoming fiscal year (see below).

Generally, budgeting refers to the process undertaken prior to the start of a year to set expectations regarding anticipated results for the upcoming fiscal year. The budget creation process will provide accountability to revenue, operating expense, and cash flow targets by oftentimes linking certain elements of employee compensation to performance against targets set during the budget.

Some key questions to ask during the budgeting process include:

• How will we ensure accountability and encourage behaviors needed to execute the strategy?
• Should we leverage prior year actuals as a starting point for this year’s budget or should we leverage a zero-based budgeting method? In other words, should we create a bottom-up budget without using prior year actuals as a baseline?

Forecasting

Forecasting is a monthly or sometimes quarterly view of how business is performing against expectations. Closed quarters are generally populated with actual data as depicted in this figure.

While budgeting refers to the process undertaken prior to the start of a fiscal year to set expected results, the forecast updates that baseline budget throughout the year by taking actual performance into account. Adjustments to the baseline budget will occur each forecast cycle to accommodate actual results and shifting business conditions as the year progresses.

Some key questions to ask during the forecast process include:

• How can we adjust to reflect changing conditions in order to meet or exceed our budgeted expectations?
• How often should we re-forecast in order to drive business decisions effectively (i.e.: monthly versus quarterly forecast)

How Does Planning, Forecasting, and Budgeting in SAP Address Key Challenges?

With the introduction of SAP Business Planning and Consolidation (BPC), version for SAP S/4HANA and SAP Analytics Cloud , companies are now able to address several of their key challenges through the implementation of the latest SAP technology, supported by the appropriate business process changes.

SAP BPC, version for SAP S/4HANA resides within the SAP S/4HANA server, which streamlines the data integration process by serving as an extension to the core ERP, without requiring a separate database or instance.

SAP Analytics Cloud is a cloud-based planning, reporting and analytics solution, which provides native integration to SAP S/4HANA and can source data from various source systems.

In order to understand the key benefits of the SAP planning solutions let’s take a deeper look into how they can help address some of the key budgeting and forecasting pain points discussed earlier.

With the evolution SAP BPC, version for SAP S/4HANA, SAP Analytics Cloud, and SAP BPC 11, organizations can now mitigate many of the key challenges previously discussed during the planning, budgeting, and forecasting process.

Some of the key planning, budgeting, and forecasting challenges SAP can help mitigate

Reduce Budgeting and Forecasting Cycle Time

Through improved data integration, budgeting and forecasting cycle time can be greatly reduced. The budgeting and forecasting cycles can often times take longer than expected when companies do not have a central planning system that collects all of the data from various source systems required to create their forecast. SAP BPC, version for SAP S/4HANA integrates in real time with the ACDOCA table which stores all of the FI and CO data from SAP S/4HANA. The ability to read data directly from the ACDOCA table eliminates the need to load and replicate data from the general ledger to the planning systems.

This is a tremendous benefit to the business as it eliminates the need to wait on long data load times and it enables real time planning, reporting, and analysis. Planners can now spend less time waiting on data and more time analyzing the data, leading to shorter budgeting and forecasting cycles.

Improved Forecast Accuracy

Both SAP BPC and SAP Analytics Cloud provide standard input templates, reports and calculations which can enable top-down and bottom-up planning. By leveraging standard content and technical concepts such as FOX code, predictive models, and SAP HANA stored procedures, complex planning models can be developed that will read large volumes of data in real time to provide accurate forecasting results.

Enhanced Reporting Capabilities and Data Analytics

To facilitate data-driven business decisions, SAP has enhanced reporting capabilities and data analytics. SAP BPC, version for SAP S/4HANA also leverages master data directly from SAP S/4HANA, which provides consistent master definitions across the ERP and planning solutions without having to load and refresh master data consistently.

Furthermore the real-time integration between SAP BPC and SAP S/4HANA provides planners and reporters with the ability to view and react to the latest organizational changes through real-time master data integration. SAP Analysis for Microsoft Office reporting tool provides the ability to slice and dice data in real time, while SAP Analytics Cloud supplements the capabilities of SAP BPC through more in depth visualization capabilities.

Reduce the Total Cost of Ownership for Planning Systems

Both SAP BPC and SAP Analytics Cloud provide organizations with solutions that can be implemented with reduced total cost of ownership due to lower data duplication and native integration to SAP S/4HANA Finance . SAP Analytics Cloud is a cloud-based solution with out of the box content that can be leveraged for both planning and visualization, while SAP BPC is integrated with SAP S/4HANA and leverages the same master data and Universal Journal .

Financial planning, budgeting, and forecasting are important parts of a business that can easily be hung up with a poor finance system. In this post, we discussed how SAP S/4HANA, SAP Analytics Cloud, and SAP Business Planning and Consolidation can help a business overcome the pain points brought about by planning, budgeting, and forecasting.

Editor’s note : This post has been adapted from a section of the book SAP S/4HANA Finance: An Introduction by Maunil Mehta, Usman Aijaz, Sam Parikh, and Sanjib Chattopadhyay.

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SAP Updates Its Ambition 2025 and Announces Transformation Program for 2024

WALLDORF — SAP SE (NYSE: SAP) announces plans to implement a company-wide transformation program including restructuring for 2024. In addition, SAP is updating its ambition for 2025. The update reflects the strong performance in the fourth quarter 2023, the updated non-IFRS definition of profit measures, as well as the anticipated benefits from the new program.

The updated 2025 non-IFRS operating profit ambition of approximately €10.0 billion now reflects share-based compensation expenses of approximately €2 billion. Based on SAP’s analysis, this profit ambition is materially ahead of corresponding analyst consensus estimates. In addition, the updated 2025 free cash flow ambition of approximately €8.0 billion is ahead of the latest analyst consensus. 

Ambition 2025

The update of the non-IFRS operating profit ambition includes a reduction by approximately €2 billion due to the inclusion of share-based compensation expenses under the updated non-IFRS definition, as well as an increase of approximately €0.5 billion due to anticipated incremental efficiency gains from the transformation program.

By 2025, SAP now expects:

• Non-IFRS cloud gross profit of approximately €16.2 billion, now including share-based compensation expenses of approximately €0.1 billion (previously: approximately €16.3 billion, excluding share-based compensation expenses)
• Non-IFRS operating profit of approximately €10.0 billion, now including share-based compensation expenses of approximately €2 billion (previously: approximately €11.5 billion, excluding share-based compensation expenses)
• Free cash flow of approximately €8.0 billion (previously: approximately €7.5 billion)

SAP continues to expect:

• Cloud revenue of more than €21.5 billion
• Total revenue of more than €37.5 billion
• A share of more predictable revenue of approximately 86%

The 2025 ambition is based on an exchange rate of 1.10 USD per EUR.

2024 Transformation Program: Focus on Scalability of Operations and Key Strategic Growth Areas

In 2024, SAP will further increase its focus on key strategic growth areas, in particular Business AI. It also intends to transform its operational setup to capture organizational synergies, AI-driven efficiencies and to prepare the company for highly scalable future revenue growth.

To this end and to ensure that SAP’s skill-set and resources continue to meet future business needs, SAP plans to execute a company-wide restructuring program in 2024. The majority of the approximately 8,000 affected positions is expected to be covered by voluntary leave programs and internal re-skilling measures. Reflecting re-investments into strategic growth areas, SAP expects to exit 2024 at a headcount similar to current levels.

Restructuring expenses are preliminarily projected at around €2 billion, the vast majority of which is expected to be recognized in the first half of 2024, impacting IFRS operating profit. Excluding restructuring expenses, the program is expected to provide only a minor cost benefit in 2024. Expected cost savings and re-investments are fully reflected in SAP’s 2024 outlook and the updated 2025 non-IFRS operating profit- and free cash flow ambition.

Financial Outlook 2024

SAP’s business outlook, which includes the financial outlook 2024 as well as the financial ambition 2025, is based on SAP’s updated non-IFRS definition of profit measures which, beginning in 2024, include share-based compensation expenses and exclude gains and losses from equity securities, net.

Furthermore, the 2024 outlook and 2025 ambition for free cash flow assume all payouts associated with the planned restructuring program will be completed in 2024.

For 2024, SAP expects:

• €17.0 – 17.3 billion cloud revenue at constant currencies (2023: €13.66 billion), up 24% to 27% at constant currencies.
• €29.0 – 29.5 billion cloud and software revenue at constant currencies (2023: €26.93 billion), up 8% to 10% at constant currencies.
• €7.6 – 7.9 billion non-IFRS operating profit at constant currencies (2023: €6.51 billion based on updated non-IFRS operating profit definition), up 17% to 21% at constant currencies.
• Free cash flow of approximately €3.5 billion (2023: €5.08 billion). This includes a preliminary €2 billion estimate for payouts associated with the program, a €0.2 billion impact from a settlement earlier this year of pre-existing regulatory compliance matters accrued in 2023, as well as a €0.2 billion adverse impact due to the discontinuation of the SAP-triggered financing program.
• A non-IFRS effective tax rate of approximately 32% (2023: 30.3% based on updated non-IFRS tax rate definition).

While SAP’s 2024 financial outlook is at constant currencies, actual currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year.

SAP will publish its fourth quarter and full year 2023 results shortly after this release.

SAP senior management will discuss these items in more detail during its financial analyst conference call on Wednesday, January 24 at 7:00 a.m. CET/6:00 a.m. GMT/1:00 a.m. EST (Tuesday, January 23, at 10:00 p.m. PST), which will be webcast on the Company’s website at https://www.sap.com/investor and will be available for replay.

Visit the SAP News Center .Follow SAP at @SAPNews .

SAP’s strategy is to help every business run as an intelligent, sustainable enterprise. As a market leader in enterprise application software, we help companies of all sizes and in all industries run at their best: SAP customers generate 87% of total global commerce. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers’ businesses into intelligent enterprises. SAP helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition. We simplify technology for companies so they can consume our software the way they want – without disruption. Our end-to-end suite of applications and services enables business and public customers across 26 industries globally to operate profitably, adapt continuously, and make a difference. With a global network of customers, partners, employees, and thought leaders, SAP helps the world run better and improve people’s lives. For more information, visit www.sap.com .  

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For customers interested in learning more about SAP products: Global Customer Center: +49 180 534-34-24 United States Only: 1 (800) 872-1SAP (1-800-872-1727)

For more information, financial community : Anthony Coletta, Chief Investor Relations Officer, +49 (6227) 7-60437, [email protected]

For more information, press : Joellen Perry, +1 (650) 445-6780, [email protected] , PT Daniel Reinhardt, +49 (6227) 7-40201, [email protected] , CET

Webcast SAP senior management will host a financial analyst conference call on Wednesday, January 24 at 7:00 a.m. CET/6:00 a.m. GMT/1:00 a.m. EST (Tuesday, January 23 at 10:00 p.m. PST), followed by a press conference at 10:00 a.m. CET/9:00 a.m. GMT/4:00 a.m. EST /1:00 a.m. PST. Both conferences will be webcast on the Company’s website at https://www.sap.com/investor and will be available for replay.

This document contains forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations, forecasts, and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including but not limited to the risk factors section of SAP’s 2022 Annual Report on Form 20-F. © 2024 SAP SE. All rights reserved. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE in Germany and other countries. Please see https://www.sap.com/copyright for additional trademark information and notices.

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Contingency and business continuity planning best practices

Contingency planning is a broad term. In theory, any business continuity checklist can be developed around issues as mundane as organizing fire drills (don’t forget to take your laptop with you!). But if the COVID-19 crisis is any indication as to how quickly normal operations can be upended, today’s HR organizations should be thinking about and creating business continuity plans for a much wider range of scenarios.

Everything should be on the table, from the next pandemic to preventable and unpreventable scenarios alike. Think natural disasters, accidents, intentional acts, IT outages, you name it. In each case, lay out how operations and resources must be shifted, refocused, removed, or added to maintain as much business continuity as possible.

All this begs the question of where to begin.

The short answer is anywhere and everywhere, all at once, so the organization isn’t caught flat-footed. But the long answer is that there are several emergency-preparedness best practices that HR managers should adhere to in part or in sum to ensure business continuity in the face of a crisis. Keeping these best practices in mind will inform the foundation of a business continuity plan template that can be followed, expanded upon, or customized to fit any situation as it develops.

How to create a contingency plan: Critical elements

There’s power in communication and policy alike. So before developing tactical steps to suit any possible scenario, it’s important to think of contingency planning as encapsulating three ideas:

• What workers want, which is essentially the employee experience in an emergency situation;
• Perception, which comprises the rumors circulating about how the company is handling the situation; and
• Business needs, which is how the company is performing in terms of maintaining business continuity and serving customers effectively.

Where these three overlap is the feedback loop – when, where, how, with what frequency, and the authenticity of communication between the company and its employees about the adverse event or situation.

Critical elements to consider in a contingency plan.

“The feedback has to be timely, and whoever delivers the communication has to be honest and transparent,” says Greg Selke, vice president and HR value advisor for SAP SuccessFactors. And as part of any business continuity plan, he explains, the methods of communication need to be planned well in advance. If, in the aftermath of unfortunate events, HR managers are deciding whether to send an email or text message to employees, the action plan is already lagging. But the more important thing to remember about the model above, Selke notes, is that it can work as well for a company of 20 employees as for one of 200,000.

The model must, however, be underpinned by a robust examination and evolution of policy. That requires equal parts intelligence and agility, particularly for a situation like the COVID-19 pandemic, since no one knows what a return to normal even looks like, never mind if and when it will be possible. This should include everything from rethinking what performance management looks like to providing resources or even time off for employees to manage stress – or perhaps help with their school-age kids’ homework. It all speaks to a better employee experience while still holding workers accountable for results. Still, policy flexibility is essential.

Think of it like this. What if a company asks sales reps to arrange in-person meetings, but some feel it’s unsafe? Or what if the clients don’t want to be visited due to safety concerns? What about employees with disabilities or those at a higher risk of severe coronavirus symptoms? HR managers need to weigh all these types of scenarios and more as they augment emergency preparedness strategies with new policies. The employee experience of any situation is what should drive the business continuity response.

It’s only after the above three elements – what workers want, perception and business needs, and the overlapping feedback – are carefully considered that specific plans should be laid out.

Find the right framework: Common characteristics of continuity plans

There are multiple business continuity plan samples to be found online, all of which help lay out the types of steps and procedures for different types of companies, nonprofits, and public services – even schools. As an HR leader begins determining tactical steps in any of those frameworks to preserve the business amid several unfortunate scenarios, a few key components should stay front and center of plans that address both small- and large-scale situations.

While this is a broad and often overused term, in the context of business continuity it’s perhaps the most important consideration. It’s not just about people being able to work remotely; it’s about the company’s ability to communicate with everyone, wherever they are. Here are a few questions to start with:

• Are emergency contacts in place for everyone?
• What are the key business-critical roles and who holds them?
• Are there tools in place that ensure worker safety?
• Do employees have the ability to view their personal data and manage benefits , time off, and scheduling to adapt to the crisis at hand?
• Does the organization have the ability to gather clear insights on what employees are thinking and expecting from the company so HR can take quick, appropriate action?

The more HR leaders can think about agility in these terms and employ the proper tools (many of them interconnected and cloud-enabled), the easier it will be to develop a more comprehensive set of contingency plans.

Succession modeling

When talking about business-critical roles, HR needs to be able to identify the required skills, potential successors, and alternates who can step in at a time of crisis. As part of contingency planning, HR professionals should be constantly imagining and reconfiguring the organization for certain and uncertain times alike. That means thinking about positions or even entire departments that might need to be moved, reconfigured, or reallocated under various business conditions and scenarios. It’s also important to have insight and analytics that lay out the wider effects any of these emergency-situation reconfigurations will have on the company – to payroll or diversity, for example. After all, realigning resources to fit with new goals will only go so far if it doesn’t deliver the cost savings required in leaner times or if it adversely affects diversity and inclusion – some of the most important considerations in any company’s long-term plans.

Worker training

Most would file training, upskilling, and reskilling under agility (above), but in the context of business contingency planning, training takes on a different meaning. In terms of keeping operations running during uncertain times, having a robust training program in place well in advance of any crisis helps HR managers avoid frantic hiring when and if the corporate strategy needs to shift.

By defining the types of jobs that will be necessary and the requisite skills for each, then instituting the appropriate learning tools, HR managers can set up, launch, and track the needed training programs. This may constitute upskilling or reskilling initiatives – or a combination of the two – in line with business objectives likely to arise in the face of specific emergency situations. Either way, this means setting the concept of skills at the center of the HR talent approach so that they are the foundation of both job descriptions and people’s careers – and are ready for further development before adverse conditions arise.

Realigning and reconnecting

In times of normal operations, businesses tend to have little trouble setting goals and communicating them to employees. People tend to know the targets they’re working toward. However, when operations are disrupted by a pandemic, natural disaster, or some other short- or long-term situation, the goals tend to go out the window. But it’s not just about scaling back expectations. In order to preserve business continuity, objectives might have to be completely redefined, so it’s critical to set new targets, communicate them clearly, and keep track of how workers are performing toward those new objectives.

It’s also important that everyone and everything is working in harmony, even mid-crisis. HR managers in particular should look for digital toolkits that help teams, departments, groups of employees, HR – really anyone – communicate and collaborate without the hassle of adding IT infrastructure. The more employees can share knowledge and information with one another quickly and easily in times of uncertainty, the more resilient the business will be.

Balancing the business with the employee experience

While continuity planning is about having both the right mindset and set of tools in place so the company can pivot broadly or selectively in response to a crisis, HR managers must always walk the uncomfortable tightrope between employee advocacy and business strategy. At the same time, however, HR can’t and shouldn’t go it alone.

Effective preparedness requires input and buy-in throughout the organization – from the CEO to legal to finance to health and safety. HR should take the lead, but the best-prepared companies bring all the aforementioned functions to the table to plan and act accordingly so no one person – not even the CHRO – is making critical decisions in a vacuum. This approach not only puts the company in a better place for crises on the horizon, it underscores the unique role that HR plays in caring for employees while simultaneously honoring a commitment to ensure business continuity. Making accessible, intuitive technology a part of those plans only strengthens the understanding of HR’s mandate up and down the organization.

It shouldn’t take a once-in-a-generation earthquake or pandemic for everyone in the company to understand that. But if best practices are followed when developing continuity plans, a company’s preparedness will ensure business agility and resiliency in the short and long terms.

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